Guide to Restaurant Cost Control and Menu Pricing

If you own a restaurant or bar then you know how important it is to determine the cost of food and drinks to form a realistic price for menu items that guarantees profits for your catering facility.

Currently, on the market, you may find defined prices for drinks and meals that vary depending on what kind of facility we are talking about, whether it is a sport bar, restaurant, beach bar or nightclub. However, these small differences in price in a long term can have a big impact on the overall operations of your restaurant or bar. They are more evident if, for example, we compare the prices of cocktails in various bars.

How To Price Drinks on Your Menu

• Calculate the percentage of the costs of purchasing alcoholic drinks. In most bars, depending on its type it varies from 20% to 25%, but in night bars it goes to more than 30% and it is the lowest in the fast food restaurants, sport bars, and lounges. This would be easy to do if you conducting an inventory in your bar.
• Determine the costs for preparation of each drink. This is the amount of the ingredients needed for the preparation of a beverage or alcoholic drink.
• How to calculate the cost of one drink? I will explain that on one simple example, very popular alcoholic drink gin tonic. To clarify the calculation of cost for one drink, you need to summarize all ingredients that you use to make it: 0.03L of Gin, 0.1L of Tonic, 0.02 kg of lemon and one straw.
• If the purchase price of 1 liter of gin costs N6,000 then the price of 0.03L would be N181. In the same way, you can calculate the cost of the tonic, if a liter of tonic costs N500 0.1L will cost N50. Pack of 140 straws costs about N1500, one piece will cost N10.7, 1kg of lemons cost N1000 and slice of lemon (0.02 kg) will cost N20. If you summarize the costs of individual items a total cost of the drink in this case would be:181 + 50 + 10.7 + 20 = 261.7
• This means that the costs for gin tonic without VAT would be 261.7 Naira.

• Multiply the amount of expenses for one drink with four or five, and you will get your price for the drink. If you multiply drink expenses with 4 your earnings would be 75%, if you multiply costs with 5 your earnings will be 80%. In our example, gin tonic selling price would be:
  261.7 x 4 = N1,048 or 261.7 x 5 = N1,308.5
• Depending on margins that you want to set on this menu item your price for gin tonic would be between N1,048 and N1,308.5 and with this price you and your guest should be satisfied.

How To Calculate Food Cost and Price your Menu Items

When you determining the cost of food and drinks you need to include food cost for a certain meal but also to add all other expenses. When you determine the selling price for menu items be sure to:

• Include VAT in your calculations.
• Calculate your profit for each menu items per portion.
• Take special attention when pricing your best-selling menu items.

You may do it by your own or use restaurant software that contains food cost calculation.

Common Mistakes During Food Cost Calculation

Most common mistakes have been usually made during the creation of ingredient list for each menu item. Be sure to pay special attention when doing this job. It is necessary to involve your main chef and store manager in this process or someone who knows the best each recipe. Where do you need to pay particular attention?

• The type of food used for the preparation of specific drink or meal.
• The exact amount of each ingredient for the preparation of food or drink.
• The quality of raw materials used for a preparation of food or drink.
• The amount of allowable drip loss for certain foods.

Don’t forget that the drip loss occurs during:

• Cleaning
• Cutting and formatting
• Cooling and storage
• Heat treatment (cooking, frying and baking).

This is very important, as for example for a portion of 330 grams of roasted beef steak you will need 500 grams of freshly cleaned steak because the loss for roasted beef is 34% of the total fresh meat. Define losses during food preparation to have correctly defined norms (ingredients) for certain dishes, and thus exactly defined the cost of ingredients for cooking.

Problems sometimes arise when you need to determine the grammage of fine foods such as spices. The easiest and most accurate way to determine the exact amount of low grammage ingredients is to use the amount for preparation of 10 portions and this amount divide with 10 to get a grammage and costs of these ingredients per portion.

Food Cost Percentage Formula

Food cost percentage formula shows the percentage of expenses for the preparation of some meal or drink.
In case you do not know how easy you may define what percentage refers to the cost of ingredients for preparing an item in your restaurant menu, I bring you this simple formula:

Food cost percentage = Total costs of ingredients / Sale price

So in our example, gin and tonic, that has selling price N261.7, percentage of the costs for the preparation of this drink would be:

261.7 : 1308.5 = 0.2 or 20%

Or

261.7:1046.8 = 0.25 or 25%

Your earnings, in this case, is 100% – 25% = 75% or 100% - 20% = 80% as we have previously defined.

Control Your Portion Size for Better Cost Control

Once you’ve formed prices for all menu items that guarantee profits and are reasonable and affordable for your guests you need to pay attention to the quality of the raw materials used as ingredients for food preparation and control of portion size.

The success of big restaurant chains lies mainly in control of portion sizes. Each portion should be the same size and grammage. In this way, you can properly track food costs and make almost perfect calculation when creating final prices and your profit.

Tips: To control portion size use precision scales, measuring cups, adjusted containers for storage of ingredients that are often used in large quantities such as flour, oil, potatoes and similar foods. You plates and glasses that you use for  serving must be of equal volume.
Train your staff  how to use and measure ingredients while cooking and serving. Once they “tune” the portion size they would be able to serve and work with portions “by the eye,” but until then let them use scales and measuring cups!

Quality of Ingredients

The importance of high-quality raw materials for the preparation of food and drinks not only affects the quality of the products, ie food and drinks, but it is a very important issue when determining the price of menu items. If you use low-quality raw materials be sure that you will have a much more waste, and your calculation of food costs would not be correct from the start. As a result, you have a product with the same quality, the same sale price but lower earnings. Keep  ingredients on high quality, reduce food waste and make a constant profit.

Change Your Menu Items Not Menu Prices

Make sure that you’re doing seasonal menu changes. This is especially important when we talking about seasonal fruits and vegetables because of big differences in purchase prices during the year even over 100%.

Delicious seasonal fruits and vegetables should be part of your offer. It applies particularly to side dishes, salads, desserts and fresh juices from fruits and vegetables. In this way, the same prices provide higher earnings. Keep your main meal the same, change just the side dish and keep the same prices.

Consider all these facts when  pricing your menu and doing the calculation of costs. Special attention should be paid to the cost of best-selling food and beverages. Include in your calculation quality, quantity, time of preparation, packaging and demands for certain menu items.

By changing prices for individual items from the menu and analyzing sales and profits due these changes, you’ll determine the best price for a particular menu items! Your sale and bottom line analyzes are your best indicators of success. Good Luck!